Selling a Business During Divorce or a Partnership Dispute

Nobody plans to sell their business because of a divorce or a partnership blowup. But it happens — far more often than most people realize. And when it does, the stakes are higher, the timeline is compressed, and the emotional dynamics make every decision harder.

If you're facing a forced or contested sale, here's what you need to know to protect yourself and your business value.

The "Dismal D's" of Business Sales

In the M&A world, brokers talk about the "Dismal D's" — the painful life events that force a sale:

• Divorce
• Disagreement (partner disputes)
• Death of an owner
• Disability or serious illness
• Distress (financial problems)

These situations account for a meaningful share of all business sales. They're not ideal, but they're manageable — if you approach them correctly.

Selling During a Divorce

When a business is a marital asset, the divorce process typically requires either:

1. One spouse buys out the other's interest in the business
2. The business is sold and proceeds are divided
3. The business value is offset against other marital assets (the business owner keeps the business, the other spouse gets the house, retirement accounts, etc.)

Getting the Valuation Right

In a divorce, valuation is everything — and it's contested. Each side typically hires its own valuation expert, and the numbers can differ dramatically.

Common disputes include:

• Personal goodwill vs. enterprise goodwill. In California, personal goodwill (value tied to you specifically) is generally considered separate property. Enterprise goodwill (value in the business itself — brand, systems, customer relationships) is community property. The distinction matters enormously.
• Normalization adjustments. How much does the owner really earn? Are there personal expenses running through the business? What's the real market-rate salary for the owner's role?
• Growth assumptions. Is the business growing or declining? Which trailing period best reflects the business's true earning power?

If you're the business-owning spouse, get your own valuation expert early — ideally one experienced in divorce-related valuations.

Timing the Sale

Divorce proceedings create artificial timelines. A judge may order the business sold within a specific window, which limits your ability to wait for ideal market conditions or properly prepare the business for sale.

If a sale is likely, start preparing now — even before the divorce is final. Clean up your books, document processes, and retain key employees. Every month of preparation increases the price you'll get.

Protecting the Business During the Process

Divorce creates uncertainty for employees, customers, and vendors. Confidentiality is critical. The fewer people who know about the divorce or the potential sale, the better.

Also: do not let the business decline during the divorce. It's tempting to check out emotionally, but a business that deteriorates during litigation will sell for less — hurting both spouses.

Selling During a Partnership Dispute

Partnership breakups can be just as contentious as divorces. The dynamics are different, but the core challenge is the same: two people who no longer want to work together need to agree on what the business is worth and how to separate.

Check Your Operating Agreement

Your operating agreement (or shareholder agreement, if you're a corporation) may already address this situation. Look for:

• Buy-sell provisions. Many agreements include a mechanism for one partner to buy out the other, often at a price determined by a formula or an independent appraisal.
• Right of first refusal. One partner may have the right to match any outside offer before the business can be sold to a third party.
• Shotgun clauses. One partner names a price; the other must either buy at that price or sell at that price. These are designed to force fair pricing.
• Drag-along and tag-along rights. Provisions that protect minority owners or allow majority owners to force a sale.

If your agreement doesn't address buyouts or disputes — or if you don't have a written agreement at all — you're in a harder position. You may need mediation, arbitration, or litigation to resolve the standoff.

The Deadlock Problem

The most common scenario: both partners want out, but neither agrees on the price. Partner A thinks the business is worth $5M. Partner B thinks it's worth $3M. Nobody will budge.

Solutions:

• Independent appraisal. Both sides agree to hire one neutral appraiser and accept the result.
• Baseball arbitration. Each side submits a number. The arbitrator picks one — no splitting the difference. This incentivizes realistic numbers.
• Bring in a broker. Let the market decide. List the business for sale and accept whatever qualified buyers are willing to pay. Market price is the ultimate arbiter.

Minority vs. Majority Positions

If you own less than 50%, you're in a weaker negotiating position — your interest is less liquid and less attractive to outside buyers. Minority interests typically sell at a discount of 15-35% to their pro-rata share of total business value.

If you own the majority, you have more leverage — but you still can't force a sale without the minority partner's consent (unless your agreement allows it).

Protecting Business Value in a Contested Sale

Regardless of the cause, contested sales share common risks:

Employee Retention

Uncertainty is toxic to employees. If your team senses conflict or instability, your best people will start looking. Consider retention bonuses or stay agreements for key employees.

Customer Relationships

Customers who learn about ownership disputes may take their business elsewhere. Keep the conflict out of your customer-facing operations entirely.

Decision-Making Paralysis

If you and your partner can't agree on operational decisions during the dispute, the business suffers. Establish a temporary governance structure — or appoint a neutral manager — to keep the business running while ownership is resolved.

Confidentiality

Contested situations are gossip magnets. Employees, vendors, and competitors will all be curious. Control the narrative, limit who knows what, and work with a broker who understands how to manage information flow in sensitive situations.

The Role of a Broker in Contested Sales

A broker serves as a neutral party who can:

• Provide an independent, market-based valuation
• Market the business confidentially to qualified buyers
• Manage negotiations without the emotional dynamics between owners
• Provide a fair process that both sides can accept
• Testify to value if the dispute ends up in court or mediation

Having a professional in the middle often breaks deadlocks that the owners couldn't resolve on their own.

Next Steps

If you're facing a divorce, partnership dispute, or family conflict that may result in a business sale, the earlier you engage professional help, the better your outcome. I work with owners in contested situations regularly — it's delicate work, and I treat it with the discretion it requires.

Schedule a confidential call to discuss your situation. Everything we discuss stays between us.